nkulshresh

“Unlock the cash in your car!” “Get cash fast!” “No credit check needed!” The ads for auto title loans make borrowing against your car sound like a foolproof solution to your financial problems.

Not so fast. Auto title loans are actually a risky, expensive form of lending. Not only are interest rates sky high, but people who can’t repay their debt may have their car repossessed. Yet those negatives haven’t stopped the auto title loan industry from thriving, particularly by targeting consumers who live on the financial edge.

Here’s how a title loan works: A lender takes your car’s title as collateral for a short-term loan. Qualifying is usually easy – you just need to own the car outright. There are no credit or income checks and you may be able to get money in a matter of minutes. After a brief period (usually 30 days), the full amount borrowed must be repaid, plus any fees. If you can’t make the payment, the lender either takes the vehicle or offers you the chance to renew the loan, for an additional fee.

Naivi Garcia doesn’t think of herself as a statistic, but she’s one of the many Texans—an average of 93 each day—who have their cars repossessed by auto-title lenders, according to reports from the state Office of Consumer Credit Commissioner. It’s the first time the state has collected consumer data from the payday loan and auto-title lending industries.

During the first half of 2012, auto-title lenders seized vehicles on about one out of 10 of their loans—more than 17,000 vehicles in all. Garcia’s experience is typical, advocates say. After a relationship fell apart, Garcia found herself in a financial hole, unable to pay her bills. A family member suggested that she borrow against her car, a reliable 2003 Chevy Cavalier worth $2,100. After appraising her vehicle, LoanStar Title Loans offered to loan Garcia $1,500. The full loan amount plus interest and fees—almost $1,900—was due in 30 days.

“Being a single mom and working a minimum-wage job, it’s really hard to come up with that kind of money,” Garcia said.

The repossession industry has changed models. Traditionally, lenders and banks would hire their local repossession agents directly. Today, many national lenders use national “repossession forwarders,” and no longer even have any contact with the local repossession agency. The repo forwarder locates the vehicle, and hires the local repossession agency itself to go take the vehicle. This new way of doing business is driving responsible repossession agents out of the business, and is creating physical danger to both consumers and repo agents.

The repossession forwarders often do not bother to get licensed in the states they operate in. State licensing laws typically define a repossession agency as any entity that engages in business or accepts employment to locate or recover collateral, for money. The repossession forwarders must be licensed, but they are not. Thus an entire industry that should be regulated by the various states, is instead running rampant in a kind of repossession Wild West. Consumers, and even local repossession agents, have brought lawsuits for these violations.